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January 12, 2008

Northern Rock Pension Fund Looks For Guarantee

by Stewart Douglas

Story link: Northern Rock Pension Fund Looks For Guarantee

Troubled mortgage lender Northern Rock has today been dealt a further blow with calls from its private pension scheme to guarantee the current deficit within its fund, which has fallen on hard times as a result of the credit crisis and market disruption following the sub-prime collapse.

The news comes as the latest problem for the mortage lender, after several months of difficulties stemming from liquidity shortages and extensive exposure to devalued sub-prime securities after the collapse of the US sub-prime mortgage sector over the summer months.

The trustees of the Northern Rock pension fund has switched investment assets from their current portfolio to lower yield investments to reflect the growing unrest in the financial markets, which has the potential to take the surplus fund into a substantial deficit, which could result in shortages in payments from the fund.

The trustees have called on the bank to guarantee the value of the deficit for the fund, secured against outstanding mortgage debt, which would further the amount of mortgage assets out in security for immediate capital loans with the Bank of England.

“We have emphasised to the Board that members and the trustees of the scheme do not wish to remain unsecured creditors in these circumstances unless alternative additional protection is made available,” said the statement released from the fund today.

The scheme has already had to endure the premature sale of assets in order to raise funds following the liquidity problems suffered by the bank, as a means of securing funds in the result of further financing issues.

It remains to be seen whether Northern Rock will offer the guarantees to its pension fund, in what has been another difficult day for the mortgage lender.

 

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